For the purposes of our calculation, fixed costs include salaries and wages, pay

ID: 444671 • Letter: F

Question

For the purposes of our calculation, fixed costs include salaries and wages, payroll taxes, rent and utilities, telephone and insurance, advertising and promotion, credit card costs, interest expense, market research, and other expenses. Loan payments and taxes are not considered to be fixed costs. To find the breakeven for tops and pants, you will need to allocate fixed costs for each type of product. If you are just starting out, you can allocate 50% of fixed costs to each. Otherwise, use the percent of sales revenue for each product type. In the chart below are some values you can use to practice calculating breakeven

Explanation / Answer

Breakeven units = (Fixed cost*Pants%) / (Tops price – Unit cost)

Practice Breakeven: Tops

50000*.5/(20-10) = 25000/10 = 2500 units

Practice Breakeven: Pants

50000*.5/(30-15) = 25000/15 = 1666.67 units

Actual numbers are as following.

Fixed Cost

$40000

Tops price

$25

Pants price

$30

Tops unit cost

$20

Pants unit cost

$22

Tops %

0.5

Pants %

0.5

Actual Breakeven: Tops

40000*.5/(25-20) = 20000/5 = 4000 units

Actual Breakeven: Pants

40000*.5/(30-22) = 20000/8 = 2500 units